G.R. No. 239315 - Cabotage vs. Field Investigation Office, Office of the Ombudsman

On May 16, 2000, Central Colleges of the Philippines (CCP), an educational institution, entered into a contract with Dynamic Planners and Construction Corporation (DPCC) to construct a five-storey school building at No. 39 Aurora Boulevard, Quezon City.
The total contract price was P248,000,000.00, split into two phases of P124,000,000.00 each.
To guarantee DPCC's fulfillment of obligations, three bonds were issued by the Philippine Charter Insurance Corporation (PCIC):

Surety Bond No. PCIC-45542 (P7,031,460.74) dated June 25, 2003;
Performance Bond No. PCIC-45541 (initially P2,929,775.31, increased to P6,199,999.99);
Performance Bond No. PCIC-46172 (P692,890.74).

Phase 1 was completed without issue.
CCP paid DPCC P14,880,000.00 as a downpayment for Phase 2 on March 14, 2002.
Phase 2 experienced significant delays; a July 25, 2003 audit showed only 47% completion.
CCP sent a written notice on October 29, 2003, to DPCC and PCIC about the breach and intention to claim on the bonds.
On November 6, 2003, CCP declared DPCC in default after only 51% completion and requested PCIC to remit bond proceeds.
DPCC requested an extension of the bonds on November 14, 2003.
CCP notified PCIC on November 21, 2003, formally terminating the contract due to DPCC’s failure to complete the work on time.

On December 5, 2003, PCIC approved DPCC's request to extend the bonds.
Negotiations to continue construction between CCP and DPCC failed; CCP hired another contractor.
On August 13, 2004, CCP demanded payment of P13,924,351.47 from PCIC as indicated in the bonds; PCIC denied the claims on August 20, 2004.
CCP filed a complaint with a request for arbitration before the Construction Industry Arbitration Commission (CIAC) on October 28, 2004 against DPCC and PCIC.

CCP was ordered to pay DPCC P4,232,264.12 for materials and equipment left at the site.
The net amount DPCC owed CCP was P9,692,087.37 with interest; PCIC was jointly and severally liable with DPCC for this amount.
CIAC denied claims for moral, exemplary, temperate damages, and attorney’s fees.

Affirming CCP’s right to terminate the contract due to DPCC’s inexcusable delay;
Deleting the award of costs for materials and equipment left at the site for lack of proof;
Holding that CCP, not PCIC, was entitled to credit for the deducted materials and equipment.

The CA maintained joint and several liability of DPCC and PCIC for the total amount of P13,924,351.47, with interest rates specified.
PCIC’s motion for reconsideration was denied on November 19, 2007.

Liability of PCIC under the performance bonds and surety bond.
Lawfulness of CCP’s termination of the contract with DPCC.
Deletion of DPCC’s counterclaim on materials and equipment costs and PCIC’s inability to benefit from the counterclaim.

Whether the CA erred in sustaining PCIC’s liability under the performance bonds and surety bond.
Whether the CA erred in upholding CCP’s lawful and justifiable termination of the contract agreement with DPCC.
Whether the CA erred in deleting DPCC’s counterclaim for materials, equipment, formworks, and scaffolding left at the site and in denying PCIC the benefit of such counterclaim.